House prices are expected to remain on the cool but unlikely to dip below pre-pandemic levels.
Sydney house prices rose 40% from the trough in June 2020 through to March 2022 – the quickest and sharpest equity boost on record.
Despite this, we are witnessing an overall slowing momentum, with the average time a Sydney house spends on the market increasing by 8 days since the 2021 low and certain aﬄuent NSW pockets experiencing a decline in property value.
This slowdown in price growth is expected to continue and purchasing conditions to improve for buyers, however as historically seen, prices are unlikely to dip below pre-pandemic levels.
The Federal government’s Help to Buy (HTB) scheme, the NSW government trial of a shared equity scheme for essential workers and single parents, and proposed NSW stamp duty reform may offer steps in the right direction towards longer-term affordability and accessibility of homeownership in NSW.
Is it now a buyers market for those living in NSW, given that we are witnessing an overall slowing momentum in property value?
"The NSW property market has been an understandably hot topic of discussion in recent years and will continue to be.
The state caters to an extensive range of demographics, both internal and overseas migrants, with a variety of landscapes, business hubs and world-class education, making the property market unique and widely sought after.
It’s for these reasons that we knew a Report of this nature, coming off the back of a unique two years, would be an incredibly valuable look at the factors that contributed to a booming property market, and what we can expect to deﬁne the property market in the future."
Soaring house prices in NSW in recent years provided the quickest and sharpest equity boost for houses, making homeownership a distant dream for many, with growing affordability constraints set against a backdrop of slow wage growth.
For example, Sydney house prices had the steepest upswing on record with an increase of 40% from the trough in June 2020 through to March 2022.
Dr Powell commented on this saying:
"House prices across all Sydney suburbs experienced an increase in price over the past year, ranging from 6% to almost 58%, widening the wealth divide between home owners and non-homeowners, and stretching the ability of others to upsize.
It’s pretty easy to ﬁnd a million-dollar suburb in Sydney, with many regions having none below that price."
The report reveals that there are signs of reprieve for buyers on the horizon, with Sydney’s price growth rate experiencing one of the most signiﬁcant slowdowns of all capital cities, due to ﬂattened house prices and declining unit prices.
A year ago, house prices were rising 46 times the current pace, and at the same time unit prices were also increasing - this indicates that Sydney's steepest upswing on record has ended, swinging power back towards buyers.
Dr Powell adds:
"Historically, downturns have been shorter and less severe compared to the preceding upswing.
We are expecting the slowdown in price growth to continue and purchasing conditions to improve for buyers but it is unlikely we will see a return to pre-pandemic prices."
The overall slowing momentum in the NSW property market can be seen with the average time a property spends on the NSW market drawing out.
In fact, Sydney has had one of the biggest increases in the country in selling time.
With Sydney houses signiﬁcantly taking a long time to sell, buyers can breathe a sigh of relief as the speedy days of transacting property are changing.
Looking at the numbers, it is taking 8 days extra for Sydney houses, and 1 day extra for Regional NSW houses, to sell compared to the recent multi-year low.
Not only are selling times slowing, but supply is gradually improving - with houses listed for sale in Sydney up by 8% and up 10% for units, annually.
It remains more challenging for buyers in Regional NSW, with the total number of houses for sale 1% higher compared to last year and 13% lower for units.
Dr Powell added:
"Sellers have become more strategic with their market timing, listing homes for sale while prices remain close to a peak and before additional interest rates rise further puts a strain on borrowing capacity and mortgage affordability.
This is encouraging for buyers as they slowly take back charge as the supply of properties for sale builds, creating better purchasing conditions, providing home hunters time to contemplate rather than compromise, and ultimately allowing rational decisions to be made.
There is greater choice and the pleasure of taking a little time if you’re looking to buy."
The supply-demand dynamics have been shifting in 2022, as buyers are getting back into the driver’s seat.
This changing balance is slowly rippling across Sydney, with sellers needing to be more realistic with pricing due to an increase in the supply of homes.
So, what are buyers looking for?
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The most bought property type in Sydney are houses (52%), followed by units (42%) and townhouses (7%).
While houses are the preferred property type in Sydney by a small margin, there’s a more even split of sales between houses and units in comparison to regional counterparts.
This more even sales ratio between houses to units ratio can be pinned to the affordability issues of living in a pricey city.
Breaking down the drivers of demand for Sydneysiders further, an analysis of Domain’s keyword search reveals the speciﬁc attributes or features that prospective NSW home hunters are looking for to help distinguish between changing trends or ﬂeeting moments of desirability:
- Being by the water is unsurprisingly top of mind as “waterfront”, “view”, “river” and “beach” all rank in the top keyword searches.
- The priority placed on outdoor space continues to shape the ideal Sydney home, with a “garden”, “courtyard” and “balcony” high on a Sydney buyer's wish list. Interestingly, outdoor space does not feature in the top 10 keywords for regional NSW.
- A dedicated workspace in the home is key for Sydneysiders, with the search for “study” being the second most used keyword in Sydney, alongside keywords on outdoor space and other lifestyle features. This is no doubt due to people making the most of the popularised hybrid working policies.
Sydneysiders, prominently Gen X and Millennials, are being increasingly drawn towards Regional NSW, with 33% of total inquiries on Domain to Regional NSW in April 2022 is made from Sydney.
Collectively, this demographic is in the prime of their working years (25-44 years) with families in tow (0-14 years) and is the biggest group moving to Regional NSW for greater affordability, a laid-back lifestyle and more space.
“There are crystal-clear differences between Sydney and Regional NSW buyer preferences. With more people making the regional move, it has refocused people's attention on the type and surrounding area of their new home. Whereas, the laser focus on being by the water is clear for Sydney preferences - with suburbs such as Kurraba Point, Whale Beach, Lavender Bay, Clontarf, Canada Bay, Patonga being Sydney’s most desired spots,” said Dr Powell.
She further adds:
"Affordability continues to play a signiﬁcant role in home searches, with keywords such as ‘duplex’ and ‘dual’ scoring a seat in the top 10 most used keywords in 2022.
This is happening across Sydney and regional areas, particularly as people are being drawn out of the city.
This suggests that rapidly rising house prices and slow wage growth have constrained affordability, and they’re now looking for an affordable alternative such as a split block."
All eyes are on the newly appointed government’s efforts to alleviate affordability constraints and increase the chances of homeownership.
Commenting on the federal government’s Help to Buy (HTB) scheme, Dr Powell said:
"The scheme aims to assist ﬁrst-home buyers with both the deposit and mortgage repayments, propelling buyers into the property market earlier and helping those who may not be able to buy otherwise.
The scheme has the potential to get buyers into the market up to 11 years earlier due to the low deposit needed, however, it’s worth noting that it can only help 6% of ﬁrst-home buyers nationally each year and this comes with the need for applicants to be mindful of their long-term ﬁnancial position to maintain mortgage repayments and maintenance of the property.
Moreover, with interest rate hikes, the cost of a home loan is increasing and reducing borrowing capacity at a time when living costs are soaring."
Tax settings, banking regulation, population and income growth, and the responsiveness of new housing supply to growing demand all inﬂuence property prices.
The speed and scale at which Sydney prices soften depend upon many factors, however, the downturn will be largely shaped by how high and quickly interest rates go up, and how high inﬂation reaches.
Dr Powell comments:
"The current level of household debt makes Australian mortgage holders sensitive to higher interest rates that will squeeze household budgets.
The higher level of debt means that the RBA won’t need to increase rates as much as it has in the past to cool inﬂation.
Property prices are partly driven by momentum, which means when prices fall this is likely to lead to further price falls – fear can feed fear, both positively and negatively."
Most recently, the proposed changes to NSW stamp duty reform have come as a welcome change to improve accessibility and affordability, and encourage ‘rightsizing’ in the local property market.
Dr Powell commented:
"Stamp duty is a major source of tax revenue for state governments but it is one of the least eﬃcient taxes with huge economic and social costs.
Designing a successful tax system for NSW will signiﬁcantly improve the accessibility of homeownership and reduce the friction of rightsizing our homes based on life stage.
Stamp duty reduces property transactions due to the sizeable lump sum and means people are less likely to live in a home that suits their needs.
This changes our life decisions, resulting in many people commuting for longer, not changing jobs, or living in a house unsuited to their lifestyle."